UBS did not notice Adoboli's £1.3bn loss

Undated picture taken from Facebook of Kweku Adoboli Mr Adoboli's last comment on Facebook was 'I need a miracle' (Photo shows Kweku Adoboli on Facebook)

I have learned that UBS's internal controls did not pick up the massive loss allegedly generated by its trader Kweku Adoboli.

The course of events was that on Wednesday Mr Adoboli disclosed to UBS that he had engaged in unauthorised trades, in his role as part of UBS's so-called Delta One trading team, which deals in exchange traded funds (or tradable investment funds whose proliferation has concerned regulators).

UBS then examined his trading positions and rapidly informed the Financial Services Authority and the police. Mr Adoboli was arrested by the police at 3.30am yesterday.

The disclosure that it was Mr Adoboli's decision to inform his colleagues of his actions that set alarm bells ringing at UBS, rather than its own monitoring system, will add to concerns that investment banks simply aren't capable of controlling the huge risks that their traders take.

UBS estimates that Mr Adoboli's alleged unauthorised trading will cost the bank around $2bn (£1.3bn) and will more than wipe out the giant bank's profits in the current three-month period.

If Mr Adoboli had not revealed his activities on Wednesday, in theory the final bill for UBS could have been even bigger.

Mr Adoboli has been arrested on suspicion of being involved in "fraud by abuse of position".

His last published comment on Facebook, prior to being arrested, was "I need a miracle".

UBS this morning refused to comment, when I put it to them that their internal systems had not uncovered the unauthorised trades.

Update 0850: The Financial Services Authority, the City's regulator, is investigating why UBS failed to identify the unauthorised transactions that the bank says will generate an eye-watering $2bn loss.

The big question is whether there is something peculiarly inadequate about UBS's monitoring system - or whether the apparent flaw might be present in the monitoring systems of other big banks.

Update 1122: I have two important developments to disclose.

First that the Swiss government is putting intense pressure on UBS to separate or close its investment banking operations.

Even separation would have profound ramifications, in that a separated investment bank would be deemed by creditors and investors as much riskier than the current integrated, universal-banking form of UBS.

It would become much more expensive for a standalone investment bank to finance itself, which would put pressure on the bank to cut costs by shrinking significantly.

That the Swiss authorities should be losing patience with UBS is no great surprise, since the giant bank lost £35bn in the banking crisis of 2007-8, and had to be rescued by Swiss taxpayers.

Bankers at UBS are aware of the push from the Swiss government for a major overhaul of the bank and are concerned.

The second important development is that over a period of time Mr Adoboli's colleagues had suspicions about his transactions. They apparently raised some of these suspicions with him. But it wasn't till Wednesday that he gave them the relevant information.

This raises even more questions about UBS's internal control systems. If Mr Adoboli's colleagues had personal doubts about his deals, why were they unable to get to the bottom of what went on without relying on evidence provided by him?

One banker described UBS's inability to see what Mr Adoboli was doing as quite extraordinary.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 21.

    Seems to me to reek of arrogance in the banks that these sort of things can happen and continue to happen.

    In any normal business this would probably finish the business, in the crazy world of banking it's an embarassment but little more.

    What I struggle with here is if UBS lost, someone else, ie another bank must have gained so the net effect is nil?

  • rate this

    Comment number 20.

    THIS GUY HAS MADE A LOSS ITS CUCKOO (Sorry chf) ARRESTING HIM ON SUSP OF' FRAUD BY ABUSE OF POSITION'. The idiots who are in charge yet again who did not pay attention in spelling lessons will need to have a whip round from past bonuses to muster up some capital defence to this rather than immediately stating the bank will make a loss, advance warning to the swiss gov to sell their toblerone stock

  • rate this

    Comment number 19.

    I agree with John there should be a Evaluation inside the bank and the investors and depositors should be alarmed about this situation there should a big impact on it.A profitable loss maybe alarming.Mortgage Louisville KY might help this situation that Adoboli is facing.

  • rate this

    Comment number 18.

    Surely we are missing the big point. This type of activity is just gambling - no net gain to the global economy, no value added.

    Derivatives and other financial instruments may have helped free up financial markets originally but they're now mostly complex gambling tools.

    How can banks earn billions in profit, pay billions in bonuses based on 'profits' that globally add up to net nothing!

  • rate this

    Comment number 17.

    I'm a rouge trader and I've made $2bn profit this week, all I'm asking for is my facebook profile on BBC.

  • rate this

    Comment number 16.

    If someone has lost £1.3 billion then who has gained this amount there must be others who took the risk the other way

  • rate this

    Comment number 15.

    Perhaps you could do an article on ETF Robert and show us sheeple how and why these are needed,

    Simplification is needed of the whole stock market.

  • rate this

    Comment number 14.

    Sadly this will not be the last case of this. If the guy was making a profit her would have had a fat bonus. The control systems are a joke in most banks. The rely on lots of excel sheets and and a castrated (and often frustrated) compliance department. The only way to make the paid really hurt (UBS can bear this loss) is to make the directors of the bank personally responsible.

  • rate this

    Comment number 13.

    Banking reform now!

    Not in 2019 but now, immediately, this instant.

    These people cannot be trusted, their methodolgies cannot be trusted, their systems cannot be trusted, their morals are non-existent, their greed out of control and their competence wholly absent.

    Why should taxpayers both here and around the world have to carry this load on their backs?

    Reform or the sans-cullottes?

  • rate this

    Comment number 12.

    Wow! UBS's expected $2 Billion profit is to be wiped out? To me it's still unbelievable that UBS could possibly make $2 Billion profit in the first place. As I see it, most investment bank transactions are zero sum transactions, in so far as one banks gains are the result of other people's losses. So, their rogue $2Billion loss should appear as a profit somewhere else. Not all bad.

  • rate this

    Comment number 11.

    Short of a "Minority Report" type proactive system there will always be the possibility of this happening. What is worrying is unless this individual had owned up at what point would UBS have picked up on this ?
    Could this have been another Barings incident in the making ?
    This just illustrates that much tighter controls need to be put in place or disasters will continue to be a regular occurance

  • rate this

    Comment number 10.

    It does seem totally astonishing that the authorisation procedures aren't in place. As an absolute minimum, there should be the "four eyes" and "six eyes"system whereby every single transaction, to commit a bank to such things, requires an authorisation from a level above within the organisation or two authorisations if at a higher monetary value. Collaboration could still occur but hopefully not.

  • rate this

    Comment number 9.

    Again it reinforces the lesson not learned. Banks and traders have made vast profits or losses at a tiny margin on massive bets. For the losses to have reached £1.3bn, what were the size of the bets.

    Encourage Barclays & HSBC to move abroad before the losses they incur from the Piigs come home to bite us. Let the US or China deal with it.

  • rate this

    Comment number 8.

    It is hardly surprising that the bank failed to pick this up, when the stark reality is that many banks simply do not have sufficient risk management systems in place to capture these risks, rather reliance is placed on back office functions to perform this function...manually

  • rate this

    Comment number 7.

    This trader didn't, all by himself, develop the notion that he was really, really special and completely infallible. Management told him so to encourage him to ignore all sense of pain or danger. It works to drive soldiers over the hill into the teeth of the enemy, but it is a disastrous when applied to commerce. The Greeks called it hubris.

  • rate this

    Comment number 6.

    We never hear of unauthorised GAINS on $2billion do we.

  • rate this

    Comment number 5.

    This loss goes to underline YET AGAIN the need to radically improve bank and financial institution reporting & accounting.

    MARK TO MARKET is the way froward & very regular & complete valuation of all banks trading positions/assets/liabilities if necessary on a daily basis & that this MUST be published.

    Every banks MUST have a public web site which shows their full position on a daily basis.

  • rate this

    Comment number 4.

    Robert I have been trading since 0545 this morning all white figures and am now heading for the golf course. what the heck r they doing arresting this guy they need his help and co-operation. I have designed a system that stops these massive hits can you use your influence and get me in there as a consultant ?

  • rate this

    Comment number 3.

    A well timed embarrassment for the apologists of the banks - e.g. BBA. It also illustrates the need for proactive supervision of the critical banks and the need for independent external audit of controls and governance generally. Reactive regulation is insufficient (c.f. Energy market). It would not be unreasonable for the government to have Non Exec representation on the board of the big players.

  • rate this

    Comment number 2.

    You''re not allowed to drive the wrong way up the motorway but people still do. If it isn't physically impossible then someone will do it, if it is impossible then someone will find a way around it. Human nature!

    Yes, this was driven by greed but greed, for want of a better word, is good!


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